Biotech In Decline

Mon, 01/19/2009 - 00:00 EDT - Portfolio.com - News

No high technology sector has been riskier for investors than biotechnology, which means that many of the hundreds of companies anxiously trolling for investors at J.P. Morgan's annual biotech conference in San Francisco last week faced a bleak future. In an era when safe-as-houses investments like mortgages are felling banks left and right, investors are understandably reluctant to roll the dice on an industry like biotech, where it takes 10 to 15 years and as much as a billion dollars to produce a single drug, and new medicines in human testing fail about 87 percent of the time. displayPromoModule ('{"moduleType":{"value" : "linksModule", "index" : "0"},"l_mediaType1":{"value" : "article", "index" : "0"},"l_mediaType2":{"value" : "article", "index" : "0"},"l_mediaType3":{"value" : "article", "index" : "0"},"l_mediaType4":{"value" : "article", "index" : "0"},"l_url1":"/views/columns/natural-selection/","l_url2":"/guides/Experimental-Man","l_url3":"","l_url4":"","l_headline1":"Natural Selection column","l_headline2":"Experimental Man project","l_headline3":"","l_headline4":"","l_src1":"/images/site/editorial/illustrations/2007/04/natural-selection-illo-medium.gif","l_alt1":"Duncan","title":"More Science News by David Ewing Duncan" }'); Even the industry's lobbying group, the Biotechnology Industry Organization, says that 45 percent of publicly traded biotech companies will run out of cash in the next 6 to 12 months. A mere 10 percent of the 370 listed companies have a positive cash flow. For decades, investors have been willing to be patient, in hopes of striking it rich eventually. But investors' patience is running out. In 2007, 41 biotech I.P.O.'s raised $1.9 billion, in 2008 a single I.P.O. raised $5.8 million. BIO President and CEO James Greenwood has asked the incoming Obama administration for a biotech stimulus plan, but gave the odds of such a bailout succeeding in Congress at only one in three. Hope for government aid comes as investors here talk about a dramatic contraction in private funding from venture capitalists and others that see little prospect for pay-outs for small and many medium-sized companies. "The biotech model over the last 25 or so years has been to assemble innovative science, raise two or three rounds of venture capital, advance your R&D program to a point at which you can go public, and then continually tap the public markets to meet your capital needs," said Richard Aldrich, co-founder of RA Capital Management, a Boston investment firm. "But the backdrop for all of this was the greatest bull market in history," Aldrich added. "It was a very permissive financial environment, which is what early stage biotech needs. The bull market has ended, and the biotech model we all came to know and love, has ended with it." Aldrich and others said they still see companies worth investing in, but not many. "There will be a Darwinian winnowing," says Bryan Roberts, a partner in Venrock, a venture capital firm in Palo Alto, California. "The mediocre middle will certainly go away. There will still be winners, but far fewer." Much of the activity at the J.P. Morgan conference involved companies and investors that still have money shopping for deals. "We are being visited by a number of companies," said Jay Flatley, CEO of the genomic sequencing company Illumina, based in San Diego. Illumina recently announced an $18 million development deal with Oxford Nanopore of Britain for its next-generation genetic sequencing technology. Illumina has remained profitable with a healthier-than-average stock price even during the downturn. It's a great time to be looking for acquisitions if you have the resources, Flatley said. "There is a sugar daddy aspect to it," he added, though he is finding only a few worthy prospects. For many struggling biotech companies, however, the sugar may be running out out.Related LinksFor Biotech, Hope and Money Spring EternalThe End of Web 2.0?J.P. Morgan Joins Fake Steve Jobs in the iPhone Spin Room

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Despite an aging population and a growing demand for medication, the biotech industry is facing a funding crunch as investors turn to “sexier” industries with quicker product turnarounds and better chances of payoff, a new report suggests.
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The ducks are quacking: Biotech bubble. Biotech collapse. Biotech, blah, blah, blah. Quack! Quack! Quack!
Here’s what you should do when you hear the ducks. Forget them. Forget the ducks, forget the quacks.
I want you to focus on one thing, and one thing only: how you are going to make money from what I believe is going to the biggest biotech market ever. Yes, I said EVER.
Why am I so optimistic about investing in biotechnology and the life sciences?

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ByNouvelle Asset Management:
This week will begin the annual watershed gathering of publicly traded healthcare companies at the JP Morgan Global Healthcare Conference in San Francisco, an amalgamation of small- to large-cap life science companies looking to broaden their reach through corporate presentations and Q&A's.

Jason Chew submits: The term “Valley of Death” has come to describe the period of transition when a developing technology is deemed promising, but too new to validate its commercial potential and thereby attract the capital necessary for its continued development1. During this transition, there is often a funding gap due to the weariness of risk-adverse investors. This is especially true today with the depressed market, creating limited exit strategies for early investors.

Harold Bock was born and raised in West Virginia. "As a kid in this state, the first thing you learn about is the Mountaineers and their sports teams," says Bock. "The next thing you learn about is Sam Snead and the Greenbrier. It's an institution."That's not an exaggeration. The Greenbrier, a hotel in White Sulphur Springs and a national landmark, has been a vacation getaway for society's elite since 1778.